Anticipation of Currency Crisis in Iran Economy with the ...
THE TRASFORMER ASSOCIATION SPRING MEETING LESSONS FROM THE RECENT CRISIS AND CURRENCY MARKETS by
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THE TRASFORMER ASSOCIATION SPRING MEETING
LESSONS FROM THE RECENT CRISIS AND CURRENCY MARKETS
byTassos Malliaris
Loyola University Chicago
May 12, 2010
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OUTLINE
1. Brief Evaluation of the Global Crisis
2. Emphasis on Lessons
3. Discussion of the Currency Markets
4. Problems with the Euro
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Causes of the Financial Crisis
1. The Unpredictability of Crises2. Macroeconomic factors (housing)3. Microeconomic factors (rating agencies,
subprime loans, derivatives)4. Banking and Shadow Banking (leverage,
securitization)5. Monetary Policies6. Government Policies
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The Nature of Crises
1. Currency Crises
2. Banking Crises
3. Financial Crises
4. Economic Recessions
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The Financial Crisis of 2007-09
• What caused the real estate bubble?• Easy Monetary Policy for 2002-2005• Why such an easy monetary policy?• Irrational exuberance and the internet
bubble• The bursting of the internet bubble
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10-Year S&P 500 Performance
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10-Year NASDAQ Composite Performance
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Actual and simulated housing demand
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Growth of the Finance Industry as % of GDP
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Development of the Crisis
• Subprime Problems with Bear Sterns• Highly Leveraged Financial Institutions• Bankruptcy of Lehman Brothers• Troubled Asset Relief Program• Liquidity Provided by the Fed• Stress Testing of Top 19 Banks
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Federal Reserve Lending
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Lending Facilities
http://www.bos.frb.org/news/speeches/rosengren/2009/100209.htm
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Real GDP
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Relative Global Unemployment Rates
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Figure 1: Global Outlook (Real GDP; percent change from a year ago)
Global GDP Growth
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Lessons
• Crisis started in the U.S.• Irony: Moderation Breeds Exuberance• High Leverage and Risk Taking• Regulatory Failures• Uncertainty Leads to Market Failures• Fed: Lender of Last Resort • Action: Fast, Decisive, Forceful
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Global Currency Markets
• Global Financial Crisis
• U.S. and EU
• China was affected Less
• Some Emerging Nations were also affected less
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China/US Exchange Rate
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Balance of Current Account
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Price of Gold During 2 CenturiesGold
0
100
200
300
400
500
600
700
800
900
1000
Date
Pric
e (U
S $)
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10-Year Performance of Gold
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Three Scenarios
1. Moderate Stability in the U.S. and EU.
2. EU Destabilizes; Prospects for the Euro
3. Inflation or Deflation?
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Concluding Remarks:Current Challenges
• Financial Innovation vs. Financial Stability• New Wave of Financial Regulations• Equity vs. Growth• Drivers of Future Growth• Global Co-Leadership• The New Worrisome Bubble: Public Debt
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0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
China (1990-2008) Germany (1955-1975) Japan (1955-1975)
Foreign currency reserves, % of own GDP
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Chinese Gender Ratio
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China’s Challenge:The over 65s